Swipe fee reform protected

The repeal of the Durbin Act survived a challenge May 24 that would have ended retailer and consumer protections from predatory payment-card fees.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. On one hand, this legislation imposed a number of regulations—which many company executives considered unnecessary and onerous—on businesses. On the other hand, the Durbin Amendment to the bill reformed the way in which debit-card swipe fees are paid. Prior to the enactment of Dodd-Frank, Visa and MasterCard dominated the debit card swipe-fee market. The Durbin Amendment brought transparency and competition to the marketplace and provided safeguards on the rates that banks could charge in fees, resulting in more than $5.8 billion in savings to consumers. It also supported more than 37,000 jobs during the first year after the reform.

Now, however, the U. S. House Committee on Financial Services is considering the Financial Choice Act, sponsored by Committee Chairman Jeb Hensarling, R-Texas, which would repeal Dodd-Frank.

“The Financial Choice Act is a large bill that would roll back a wide range of banking regulations established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,” said J. Craig Shearman, the National Retail Federation’s (NRF) VP for Government Relations and Public Affairs. The repeal of Dodd-Frank, which would include ending taxpayer-funded bailouts of large financial institutions, also would repeal debit reform, end debit network competition, and end incentives for banks to compete on the price of debit swipe fees, a move that has the potential to increase the fees that all small retailers and their customers pay every time a customer uses a debit card.

“Banks took a percentage of the transaction for debit cards until the Durbin Amendment was passed as part of the Dodd-Frank Consumer Protection and Wall Street Reform Act,” Shearman said. “Under reform regulations that took effect in October 2011, large banks are limited to 22 cents per transaction, down from about 45 cents in the past. The limit saved retailers about $8.5 billion in the first year alone, with close to $6 billion of the savings passed along to consumers, according to a study by economist Robert Shapiro. Before adoption of Dodd-Frank, combined credit card and debit card swipe fees had tripled over the previous decade to reach an estimated $50 billion a year.”

The reason the Committee on Financial Services gives for pushing the Financial Choice Act is to repeal the excessive overregulation that was enacted by Dodd-Frank, loosen regulations on small businesses, and cut bureaucratic red tape, all of which would be beneficial to the U.S. economy. However, the repeal of the Durbin Amendment would be very detrimental to small retailers, many of which operate on profit margins of 3 percent or less, rather than the margins of 40 percent or more that giants such as Visa and MasterCard enjoy.

“Repealing reform would undermine transparency and competition, further lining banks’ pockets,” Shearman said. “Many retailers have cited swipe fees as their second or third highest cost behind wages and employee health benefits. With retail industry profits averaging only about 2 percent, there is no room for retailers to absorb the expense, so swipe fees are passed on to customers in the form of higher prices. If debit swipe fee reform is repealed, costs to retailers will only increase, meaning higher prices for consumers and less opportunity for retailers to grow their businesses, provide jobs, and support community efforts.”

In a surprise move on May 24, Chairman Hensarling agreed to remove the provision of the Financial Choice Act that would have repealed the Durbin Amendment.

“We won’t let this one provision hinder passage of an important priority bill,” he said in a written statement. “I’ve said before that repeal of the Durbin Amendment was the most contentious part of the bill among Republicans. I believe it belongs in the Financial Choice Act, but I recognize and respect that many members of Congress feel differently.”

Retail association officials welcomed the news. CBA President Curtis Riskey said local retailers, especially Christian store retailers, contribute much to their communities and shouldn’t be burdened with these costs that are hidden from consumers.

“This is a major victory for the consumers who have saved billions of dollars under swipe fee reform and for the communities where retailers have used swipe savings to improve customer service, create jobs, and boost the local economy,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Repeal of reform would have allowed banks to return to the uncompetitive market that allowed them to set these fees as high as they liked. The progress that was made toward competition would have been lost, and consumers would have seen nothing but higher prices.”

Despite the good news, Duncan said will retailers will continue to follow this bill to the end and ensure that repeal is not included in the final legislation.